Nigeria: Beyond Protectionism and Import Substitution, By Seun Kolade

The dramatic fall in oil prices, and the even more dramatic depreciation of the naira, has left Nigerians scampering for answers and searching for ideas on how to arrest the nation’s slide down the precipice. Governments, especially at the state level, are struggling to pay salaries. The private sector has been hit, with thousands losing their jobs. The good thing now is that there is a renewed sense of urgency about the need to address the long-standing problem of the nation’s heavy dependence on crude oil receipts. Amid all the doom and gloom, Nigeria now has a chance to move away, once and for all, from the “crude” economy.


As is often the case with Nigerians, social media has gone on overdrive, with armchair critics and beer parlour “experts” proposing ideas and solutions on how to move the economy forward. Much of the popular rhetoric has centred on protectionism and import substitution. There is one Senator Ben Murray-Bruce who seems to be more visible on social media than in the chambers of the national assembly. He has released a lot of posts urging Nigerians to buy Nigerian made products. He is following up his “patriotic” posts with big publicity about his efforts to “lead by example”. He is buying new cars assembled in Nigeria. And so on. Others have pointed out that his own history as a businessman has been about promoting and selling foreign products, not least through his well-known Silverbird Cinemas.

There is merit in some form of temporary protection for local enterprises, and in the idea of a nation producing to cater for its domestic needs. Import substitution is often associated with developing countries, particularly as it occurred during the years of the Cold War, through the 1980s. In reality, even a country like the US has, from time to time, embraced the idea of import substitution as part of a strategy to promote national and regional development. That was the case in the “Buy America” campaigns in the 1970s. Even within the US, states like Oregon (through its Oregon Market Place initiative) and Massachusetts (through its “Community Supported Agriculture”) used import substitution to stimulate local economies and stem the tide of capital outflow to the tune of billions of dollars.

However, the fact is that protectionism and import-substitution are not, on their own, credible economic strategies. Such an approach is spiritless and lacking in vision and ambition. It is not sustainable in the long term. No nation that has the aim of selling its products to the outside world should shut its market to same. The logic is simple and straightforward.

A nation like Nigeria can however kickstart its comparative advantage by combining temporal policies of protection, say in in select industries, with a rigorous programme of quality control, promotion of innovation, and development of advanced human capital. Without the latter strands, protection is not only futile, it is ultimately inhibiting. Consumers are fundamentally the same everywhere. The consumer is first and foremost practical, before he is a patriot. He wants to buy a product that is functional, good value for money. It may be a Korean or Tibetan product. His main concern is whether it is at a good price, and does its job.

Take the example of the much-talked about Innoson cars. So far all the talk have been about the fact that it is produced in Nigeria, and little or nothing about the competitiveness of its price and the quality of the product. Yet this is the one area where government can step in, with support for quality assurance, and temporal subsidies for local firms. Industries should be encouraged to embrace a forward-looking approach by which they can look to export their products overseas within some years of local production and sales.

An export-oriented economy is more ambitious and sustainable in the long term. It is, yes, more challenging, as it requires especially high levels of specialised human capital to drive innovation and change, as well as a high level of physical capital, especially in terms of energy and transportation/communication infrastructures. Yet it is the way of the future, for nations aiming to achieve and maintain competitive advantage.

One argument that is often made is that developing countries are at a distinct disadvantage as they struggle to achieve competitive advantage. It is said that because of the weakness of institutions and the derelict state of essential infrastructures, the goal of an export-oriented economy is too ambitious, almost impossible.

Now, while we should not make direct comparisons, the curious fact is that it is the nations that have suffered significant social and economic crises that have, in fact, gone on to achieve competitive advantage within a short time. Until 1989, Germany was divided in half. Japan suffered heavy defeat in the Second World War, as well as South Korea. It is true that other things were at play, like Germany’s historical position in human capital development, or Japan’s water-tight social organisation of production. The inescapable fact is still that these nations emerged from crises to become hosts of world leading, competitive primary industries in manufacturing and services, etc.

Nigeria’s crisis point is actually a critical moment of opportunity. The next 10 years may decide the subsequent 100 critical opportunities – if there are yet 10 years for the entity called Nigeria – in terms of economic transformation and industrial development. With the right policies, incentives and infrastructures, Nigeria can unleash the productive capacity of its 180 million people, with ambitious, innovative entrepreneurs driving the “Nigerian miracle”. Alternatively, it can unleash hitherto suppressed demons, precipitating a nightmare for which Boko Haram insurgency will be but a dress rehearsal.

There is no middle ground. Given the delicate state of the polity, with millions of youth unemployed – hungry and angry, the option for half measures is now gone for good. Its either an economic miracle. Or a tragic nightmare.

Seun Kolade is a Postdoctoral Research Fellow at the Centre for African Entrepreneurship and Leadership, University of Wolverhampton, UK.